With the recent crash of DRYS shares, I wanted to share a conservative balance sheet analysis for DRYS based on the balance sheet numbers as of September 30, 2008.
Shareholders equity is $2.1 billion.
Shares oustanding are 43 million.
This suggests BV of of $49 a share. Clearly this is drastically inflated given the market conditions.
So let's make some very conservative adjustments. First, write down goodwill ($692M) to zero. Also, vessels, on the balance sheet at $2.1B should be discounted by 50% because ship prices have crashed. JP Morgan came out today and noted that ships were selling for 50% less than even six months ago. The drilling rigs, at $1.4 billion can be discounted 10%. The long-term market for ultra-deep water business is still sound. Also because these rigs take years to build, I beleive that many buyers would step and pay a strong price, possibly full book value.
This adjustment totals approximately $1.8 billion, for an equity value of $330 million. At 43 million shares, this equates to conservative liquidation value of $7.70 a share.
Obviously these are my assumptions, but becasue I have written on DRYS I wanted to provide a fire-sale type liquidation value should the worst occur. Right now the BDI index is down over 90%...this has never happened before. Shipping rates are so low as to assume that we need no ships. The key is the ability to meet your debt convenants. If DRYS can do this (or more appropriate if they can convince thier lenders to sit tight), the business is worth more. Many have been concerned in light of the precipitous fall over the past few days. My goal is to provide a bare bones look. None of this assumes the 25 million shares that were to be issued for the new ship acquisitions. I can't imagine management going through at these levels...if they do, that will tell us a lot about their competency and ethics.
Position: long DRYS
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